E228: Acquiring an IT MSP: Strategies, Overcoming Challenges, and Ensuring a Smooth Transition

[00:00:00] Ronald Skelton: Hello and welcome to the How2Exit podcast. Today I'm here with Nick Akers and we're going to talk to you about this company recently purchased in the last couple of years. I'm really looking forward to this. I spent so much time talking to advisors and lawyers and brokers anddue diligence people.

My goal over the next few months is to get more people like you. That's actually in the trenches, done the deal. You created a search, you created, you found a company and now you're the operator. So looking forward to hearing your story. Looking forward to kind of hearing how you got to where you are and how it's going.

So thank you for being here today.

[00:00:34] Nick Akers: Yeah, thanks, Ron. I'm looking forward to talking with you.

[00:00:37] Ronald Skelton: Cool. We always start with the, the origin story. The joke, Hey, you were born and now you ended up on a show about mergers and acquisitions. How in the hell did you end up on a show like this? It's kind of going around. How did, what got you into buying a company? I could see that youbeen in the industry for quite a while. So what got you to buy your first company?

[00:00:54] Nick Akers: I think it was essentially a long, multi year, perhaps multi decade, path of realizing I probably can't work for anybody else. So this was pretty much the only choice.

[00:01:05] Ronald Skelton: Yeah, yeah, I can get that. A lot of us are that way, right? I make a horrible employee. I've tried to a few times. Been at quite a few companies where I've been only made it for a year or two before I told the CEO what I thought about him. Like, you know, what I thought about how things are working. And sometimes that goes really well and things change.

But most of the time that goes to where you need to go find somewhere else to work. So you, you're in the industry, you figure it out, man, I got to do this thing on my own. I imagine you did some startups. We all start that route. At some point somebody triggers, for me, it was, I was looking around to do what next, what was next.

And I seen some little webinar or something on there talking about buying a business and you know, this is, right around COVID. So right, right in the middle of COVID when you're really bored, staying at home a lot, watching extra videos. And I thought, okay, that's an interesting thing. Why, why start another one when I can go buy one?

What was the catalyst for you that was kind of like, wait a second, I could buy one?

[00:01:57] Nick Akers: Well, I too did the startup thing and for me, it was the very first thing I did right out of college. So started what ended up being a venture capital funded company. I was 22, 23. Did that for, uh, about eight years. That was a good, good run. I obviously learned a lot and had to learn everything about running a business straight away.

And I came from a, a technical education background that like never had one business or accounting class at all. So, it was really good learning experience. And then went into a little bit more of traditional career roles, but there was always some thread of ownership or potential ownership at these other companies that I worked at before deciding it's time for me to go chart my own path, really create my own mark. 

And that's evolved initially in working with some private equity firms, kind of like an independent sponsor. I didn't even know what an independent sponsor was, but that's what I was doing. I was sourcing deal opportunities myself. The private equity firm was giving me deal flow for us to look at together.

And we pursued a number of opportunities, put LOIs out, but this was right. It was during COVID and just kind of at the tail end of COVID. So the, the valuations were just completely insane. High teens, even low 20s. So we obviously never got anything done. But, what I realized through doing that, and I was working with the private equity firms for probably 18 months.

And towards the last six months of that, I realized I was on their timeline, not my timeline. Right? They're getting deals done in their firm, but I needed to get Nick's deal done. So I learned about search funds. I had never heard the term before, literally just learned about it from an ad on LinkedIn. Which ended up being an ad from this accelerator that I joined Nova Stone Capital.

So that, that ad is what triggered me to, Hey, this search fund thing sounds really cool. You know, a structured way that an individual can go buy a small to medium size business. And that just that really hit a chord with me. And, uh, it was, it was an exciting journey to get to where we are now.

[00:04:09] Ronald Skelton: And there's so many different avenues to go down this, right. There's SBA loans and there's search funds that sometimes they use SBA loans. And then there's, you know, self funded there's creative structural deals. And, I was telling you before we hit the record button about, some people have done sell lease backs where they're real, there's real estate attached and it's, it's worth something.

So you can use that as part of the down payment or pay for, you know, if you're buying the unicorn, pay for your business with the real estate. So, the fact that you went to two different avenues, you like the independent sponsors, which is around most of our guys, our listeners probably haven't heard of.

I've interviewed one guy that made some serious money as an independent sponsor. Bakari, it's his name, Bakari Akil. Very unique name, but he did two 20 plus million dollar deals and, as a independent sponsor and did really well with them. But that's just an avenue a lot of people hadn't heard of.

I hadn't heard of it until he came on here. And so I started researching, like, that's a really cool way to do things too. So you started that, that route and then realized, wait a second. if I do this, if I break away from this and do my own search, and then you can define your timeline, you can define your search criteria and probably pull the trigger on something that you would like more than what that, what your backers are like. Now, this company that you're worked with this, what was it again?

Nova something? 

[00:05:24] Nick Akers: Nova Stone Capital. 

[00:05:26] Ronald Skelton: Nova Stone Capital. Now, did they provide some of the funding or is it all, was it a mix? Like a lot of these things are mixed. You bring some capital, they bring some capital and they do some debt raise and stuff like that. Or how did it work?

[00:05:37] Nick Akers: Sure. So their program has evolved, since I, uh, was in it as, in during the search phase. And Nova Stone Capital advisors, started their search fund accelerator program in Europe. So they had been in Europe for a couple of years and wanted to bring the program to the USA. So I was their first USA based searcher.

Now there's, you know, maybe 25 of us in the U. S. that are either in the search phase or post acquisition. And, the deal structure looks very much like traditional search. The economics for the searcher. It's, you know, pretty much follows those economics. What attracted me to the Nova Stone program is, they help you very quickly raise either, from them directly or through a consortium of family offices that they partner with, your search capital.

So, that part getting that done, you know, very fast and smooth was attractive to me. But they also have a pretty significant staff. I described to folks that it almost looks like a small boutique private equity firm because, they have, they have in house legal, they have in house deal origination capabilities. Their M and a team that really, you know, they're the Excel wizards. Uh, I'm not one. So I viewed partnering with them as really improving the odds of being successful. And I think that proved to be the case for me.

[00:07:01] Ronald Skelton: I've only run into two or threecompanies that do what they, what you're telling me they did. I just interviewed a guy who's starting one since in its infancy. A 25 year veteran of the private equity, attorney. Who's now created a little private equity company that's doing exactly what you're talking about there.

They're sponsoringfirst time buyers and helping them do all the legal and stuff. But, I think it's extremely lucrative business model. We were talking about before the show is the Y Combinators of, of the venture capital world. I'm surprised there's not more of this style for the guys who are. Buying companies because you're not taking a gamble on an idea.

You're picking up revenue generating profitable companies. So, I'm glad they're not, as a matter of fact, we probably should just check, quit chatting about that. Cause the more of those guys that are in it, the harder the search becomes.

So now, tell me what, you said you went to, you told me before the show that you went to lunch with a broker and he had this listing, right? Do you already kind of know what industry you wanted to be in and kind of because of your background, your technical background, you kind of know you wanted to be in the IT space?

Or, what was your, prior to talking to him what was your search look, what does the search look like? Did you have a buyer's box that was well defined?

[00:08:14] Nick Akers: Yeah, so, my background before going on this search phase, even with the private equity folks was in the specialty chemical sector. So I had developed uh, an acquisition. Thesis that was hyper specific within that industry.

And when I presented this to private equity firms, everybody got the value proposition. And you know, so it was very easy to get people to, to line up and, and, help support that. When I transitioned into what we think of as kind of the traditional search fund approach, I came in to this Nova Stone Capital Group with a variation of that hyper specific specialty chemical search thesis. And, And, that was part of the program, at least at that time, is Nova Stone was looking for what they call mid career professionals. So they're not, they're not doing the right out of MBA, folks going into search. They're looking for somebody with, you know, 15, 20 years of track record. And an industry specific experience.

So I began my search, looking in specialty chemicals, leveraging my network, just as I had during the private equity time. And, was, you know, of course thinking I would pull something from a proprietary search, like a lot of people start out doing. But, uh, I realized about 6 months into that effort, I was wasting a lot of time.

I developed some LOIs and those types of things, but, you know, I just was not dealing with serious sellers. And it's just, just taken way too long. And also, so there was that learning experience and then the valuations, even on the smaller side of specialty chemical were remaining very robust. And as I was talking to the Nova Stone folks about, you know, where I'm at in pricing, it became clear that that industry was not going to line up with the entry multiples that is expected for a search fund. You know, we all generally know search fund is probably less than a six, you know, you're probably looking for three, four, five ish.

And especially the chemical, the lowest I was seeing was like seven or eight. And that was for really messy businesses. So those two things weren't lining up. My search started in December of 21. So about the summer of 22, I decided to pivot because I was starting to become concerned about the ticking clock that we have, right? This is, this was a 24 month search phase. 

[00:10:40] Ronald Skelton: I was going to ask what, how long, cause they usually give you 24 or 36 months. Right? 

[00:10:45] Nick Akers: Yep. So this program is 24 months with the opportunity to extend it under the appropriate circumstances. So in the summer of 22, I decided to pivot and become generally industry agnostic, but focus heavily, if not exclusively on brokered deals. So that, you know, of course, instantly generated a lot of deal flow, but it doesn't mean it was good deal flow, but it was something. 

And you know, just trying to do all the things that all the searchers, all the tricks we all know, leveraging the local, my local network in St. Louis, and meeting folks. So I had reached out, just cold called one of the well known brokers in town. We scheduled a lunch. I had no idea what listings he had. He didn't know me at all.

You know, we sit down to lunch. This gentleman had never heard of a search fund. So we spent a lot of time explaining that. You know, I mean, the guy was basically interviewing me and probably trying to figure out, do you even have any money? Like what, what am I wasting my time here for? But, you know, we, we had a good conversation for about an hour and then, he just brought up, he's like, Hey, I've got this services business.

I know you've come from a manufacturing background. Do you want to take a look at it? Didn't tell me the name of it at that point, but, that lunch was in September of 22. Uh, and then we spent from September until December, I think we signed the LOI on December 23rd or 24th. He eventually revealed the name of the company.

It was what we acquired, STL communications. It's a IT managed service provider. Went under LOI, uh, just right before Christmas. And then we closed on May 5th. Of 23. So right, right at about an 18 month mark for the whole search phase, which I believe is, pretty, pretty standard, takes about 18 months for folks to be successful.

[00:12:35] Ronald Skelton: Yeah. It seems about average. Describe what was going on from the LOI and which was in December until you said May, right? You're talking, five, five and a half months?

[00:12:46] Nick Akers: Yep. And, um, you know, we certainly expected to, for it to take about three months, right? But things happen, you know, both on the sell side and, and, the buy side. Nothing major, but, just certain things have to get done. So, you know, actually, the, the, data room was not prepared when the LOI was signed.

So I think there, there was some amount of time required for the seller to get organized for a real data room. And then, um, then we just did the typical things that you find in diligence. We didn't have any, any really major findings that, uh, caused a, a, retrading discussion or anything like that.

We, we ended up paying the price that we indicated in the LOI. So, I feel good about that. I think there's some integrity there. So yeah, it was all fine. And then, one Monday morning at eight o'clock, I'm sitting in this guy's conference room in a suit and he drags everybody in. And I think he talked for maybe 30 seconds. Like maybe and said, Hey, guess what everybody? 

I, uh, I sold the business and, and here, here's the new CEO, Nick, standing over there in the corner. And, there was a bit of pandemonium that happened. So some people crying and, uh, that was quite the interesting day.

[00:14:02] Ronald Skelton: Yeah. There's whole sections of business books that are,geared towards how people deal with change, right? Who moved my cheese is the one that keeps coming to my mind, but people do panic at that first initial, what do you mean you sold the business? Where's my job going, right?

I know people who are serial, serial acquirers. They acquire multiple businesses and they won't allow that conversation to happen on a Thursday or Friday because they don't want people stewing all weekend. They make it happen, not on a Monday. 'Cause they are, and not in the beginning of the day, on Tuesday, usually do Tuesday, Wednesday.

And they do it very structured. They have people go to work. Get involved and stuff and then they have a meeting right before lunch. And then they make sure there's plenty of work to do after so they have to go back to work. And, it says, you know, if you let people stew all weekend, you get people quitting on Monday because they're panicked.

And, it's just, especially in the smaller business world. So, it doesn't, didn't shock me when you said there was a little pandemonium going on. How did you handle that? Cause you've got a, now you're in almost reaction mode, right? You've got a bunch of people panicking. You need them to get back to work.

You need them to develop a sense of rapport and trust with you. So I imagine there was just a series, a bunch of meetings with individual players and individual managers and stuff. But what did that look like? How did you reign that back in and get everybody on board?

[00:15:18] Nick Akers: Yeah, it was, it was a number of things as you allude to, right? You know, I certainly had a speech prepared for that moment. I doubt anybody heard a word of it. And then, you know, I spent the first couple of weeks, just doing a number of things. One, it's trying to not be in my office, right? Just constantly walking around, just being visible, talking to folks, you know, having one on one meetings, going to lunches, all of those types of things. And then maybe it was the, the first, start of the first week after the close. I heard this idea from somebody else. I thought it was a good idea. It's, It's, not revolutionary, but I think it was a, it's a good gesture. We had a, all company meeting in the conference room and I had notebooks for everybody, nice notebooks for everybody.

Handed them all out and, basically gave the speech. Look, I, I'm not looking to change anything drastic here, but I want your feedback. So, any ideas that you have had about the business or you come to have, write them down in this notebook. I can't promise I will do everything that you write down, but I can promise I'll listen to you. And I got feedback. I think that went a long way. And some people did it, you know, not everybody's going to actually follow through with that. Um, but some people did and we implemented a lot of what they requested. And, again, I've heard other people talk about that, just that simple gesture, right?

Somebody asks you or makes a suggestion and then you do it. That goes much further than I think most of us realize. 

[00:16:48] Ronald Skelton: We talk about that a lot on this show is like, somebody says, Hey, I'm about to, about to close this. And I kinda, I kinda grin because it reminds me of like the dog that chases the car, right? What are you gonna do when you actually catch the car? So now you caught the car. And, um, the first thing I always tell people is don't change anything for six, you know, three months to six months. Just observe.

And it's in before you make a list of everything you think you need to change along that process, right? That five to six months or three to three to six month process. And then I told her, we always talk about this interview, every employee, figure out what they need to change, and then look where your synergies are. What you think needs to change and what they need to change.

And because they're going to have buy in on that stuff. So I love what you did because,you look through that and go, you know what? I think that needs to change too. And that seems to change him because it was their idea, their concept, they're more likely to be bought in and actually help with that.

And now you build rapport with the things you see that needs to change that they just might not notice yet. So that's the only approach I've seen that works. I've talked to, I've talked to a guy who bought a company in South Africa, an IT company, and he made a bunch of changes right off the bat and he had 21, I think 21 was the number, 21 employees. He lost every single one of them within 30 days.

[00:17:55] Nick Akers: Well, we were fortunate to retain, almost everybody, you know, certainly all of the, the key contributors and the folks that, that you, you, want to stick around. And we did, I didn't, I've heard that wisdom of wait 6 months. I did not wait six months. I started changing things pretty fast.

Just that's my nature, but we did, um, relatively, you know, simple minor changes that, you know, the most minor one we did was provide free coffee. There was not free coffee. I mean, that's, you gotta have free coffee. So that, that's super easy. But one of the, um, kind of the, my favorite stories or instances that, that did happen very early on, I think it was maybe week three. I had the, um, one of the top people in the company top in terms of, you know, this is one of your A players. This is key person. And, they came into my office very early, very casually. And they're just like, Oh, Hey, good morning, Nick. Here's my resignation. And, um, and they said, look, you know, it has nothing to do with you.

I didn't know the owner was selling the company. I was already, I was gone. I mean, just the timing worked out that I was interviewing and just had accepted just a couple of days after the sale. So it's not personal to you, Nick, but, but, sorry. See ya. So I said, well, hold on a second. Why don't you sit down and let's look what's going on here.

And, I asked this person, you know, a handful of questions to determine, you know, what led them down the path to, to want to find a different situation. And, um, they had a number of things, you know, past grievances, all that type of stuff. And so I said, on a particular issue that this person I had, had, I said, no matter what the result of our discussion right now, whether you stay or leave, I'm going to fix that for you today.

I'm going to resolve what that problem was. And the person, you know, literally lean back. They were stopped in their tracks. And this was a really, the issue was really important to this person. And, one, being able to correct something like that, is a pretty, makes you feel pretty good, to impact somebody in a positive way.

And the person ended up changing their mind and staying and is one of my best people. I mean, it's just like, that, I think that's the power of being in this position. It's just, it's one of my favorite stories that I've ever had.

[00:20:11] Ronald Skelton: That's a good turnaround too. Like he was already ready to go and it happens. Every business that you acquire, there's going to be a certain subset of people who are already out there interviewing anyway. So, they've kind of checked out. And then there's gonna be another subset of people who, they've already kind of, all this joking around, these terms people throwing.

They've already kind of quiet quit it anyway, and uh, like the second you come in, they're already gone. And it's probably better for you as a business owner to have those people go ahead and find something else to do. Like, I always joke around there's no such thing as a bad employee. Uh, even tell people like, when you, when I let people go it's like I, you're not a bad employee. You're probably just a better employee for somebody else.

And, um, sometimes that's the best thing, but when you step into a new environment, everything's changing. Being able to identify that and like your natural reaction to him is, Oh, well sit down. Let's have a conversation about that. Gave you a legs up and learn when you got to keep him. But number two, somebody about to leave has no, there's no hole, large hole, right? There's nothing hidden. All the other employees would be afraid to tell you what's wrong in the company.

That guy's going to tell you the story. So, you learned something and actually probably benefited the company overall, just because he was at that point, right? You got information from him that had he not had another job and had he not, ready to render his resignation. He probably would have taken six months to tell you if you ever told you at all.

[00:21:35] Nick Akers: I think that's right. And something you mentioned there made me think of another kind of surprise to me, post acquisition. I just wasn't prepared for, you know, we have a very unique point of view coming in here as the new CEO. And that, I don't have any ego in the history of the company, right?

Whatever, whatever it is. Hey, you know, we have X, Y, Z, CRM. Like I don't have any ego in, that was my choice. So I've got to hold onto it, whether it was a bad decision or not. And you extrapolate that over every part of the business, it's been a really interesting exercise for me, you know, where somebody might criticize it or a customer might say something. Whatever the situation is, I can look at it completely non emotionally and objectively.

And, I think that's, that's, been a real benefit for me, at least as we've kind of ran the business for the past 16 months.

[00:22:27] Ronald Skelton: So, I guess the next area goes into, how did it, how did the business go? A lot of times when you buy something, you have this kind of a little dip and then you start to bring it back up and start to increase production again and stuff.

Did it stay pretty steady when you got ahold of it as far as revenue and profit and stuff? Or do you go through that typical learners curve where you start making a little less money and have to get into a panic because something's, something's changed? 

[00:22:50] Nick Akers: So, we've done well, again, we closed in early May of 23. So if we look at just the calendar year of 23. We had a greater than 10 percent top line revenue growth for that calendar year. So, so that was all, uh, great. And the bottom line stayed strong where it needed to be. It, you know, one of the powerful things about this business and, and most IT managed service providers is the recurring revenue that was certainly one of the very attractive components to it.

So it was, it was very nice to have that security cushion, predictability, whatever term you want to use. And, but we have a blend of, um, the recurring revenue and project based revenue. So last year was a good year. This year could be a good year. It's just, can we get all the work done and recognize the revenue? So,

[00:23:37] Ronald Skelton: What is, uh,I'm, I can guess what a communication company does, but tell us a little bit about what the product is, what type of services you're, are you providing? I imagine it's not just phone systems, right? What do you guys install, manage, control? What is the product that you guys have?

[00:23:56] Nick Akers: Sure. I'll start, uh, specifically for this company and then perhaps a little bit broader for IT MSPs. This company was founded in 1989. And at that time and for some large percentage of its history, it was a telecom company. So dealing 100 percent invoice. So maybe 10 years ago or so, uh, the owner started to get into more of the traditional IT managed services.

So these would be things like, remote desktop, remote server management, cybersecurity, data backups, uh, on premise or in the cloud, cloud services, all of those types of activities. Communications is still a very big part of the business. You know, most people these days are using some type of cloud manage voice solution.

Teams is one that everybody's familiar with, but, typically more sophisticated businesses are, are relying on something a little bit more robust that integrates with their systems. UCAS is the acronym, Unified Communications as a Service, which encompasses a lot of different communication methodologies, either internally or externally facing with your customers.

So those, those are the things, uh, that we do. Just with the history of the company, the, the STL communications name. I think, lends itself to connotate that it's a, a communications company, telephony company. So we're actually, we're, we're, rebranding, renaming the company that was part of our pre-acquisition growth thesis.

So, current plans are right now, uh, before the end of the year, we'll unveil our new name, new logo, and, and, really with the idea of not pigeonholing, pigeonholing us into a specific category to really represent the broad, services and technologies that we, we do offer today. 

[00:25:44] Ronald Skelton: Yeah. I date myself when I tell you, I, that's the era that I was in, right? I graduated high school in 90 and I was in, you know, it was in tech by 93, 94. So, I got to see the big phone clauses and the $200, 000 PBX, I think what they call them, machines or where you had all the patch panels. And I've plugged more, I've, did the, uh, what do they call punch cards, whatever, you're punching the wires into the punch boards.

I've done that more often than I'd like to admit. I'm old enough to tell you that, I used to do that to set up networking equipment. So we used to punch those into the punch boards too or where your networking offices together. And I got to see, before I left the tech industry, we were starting to switch everything over to VOIP, voice over IP.

So is there still, I imagine, and I still see that occasionally. Right now, I've been to a couple of manufacturers, manufacturing plants where I walked into one and they still had old green screen, wayne computers and they had a telephone room, a big PBX, like, punch board room. 

But, there's still a bunch of those. You would think now in what we're sitting here in 2024, those phone systems went away in the late nineties. The voiceover IP came around pretty well in the mid nineties, right? So I'm guessing it's been a while. But, uh, the fact that they're still out there, right? 

[00:26:58] Nick Akers: We, we rip out 20 year old phone systems all the time.

[00:27:02] Ronald Skelton: And replace them with something that, had they, had to replace that with the same type of system that they had in it, it would be five times more expensive. The newer machines and the newer voice over IP for some reason is, at least when I was replacing the stuff, was a fraction of the cost of the original equipment because it wasn't so proprietary. It's a lot more competitive, I guess.

[00:27:22] Nick Akers: It is one thing about this industry, you know, I don't want to label it purely as a commodity, but it's not too far off. Because we can all sell the same thing. I mean, there's, there's really no barrier to repping any of the solution providers. And so what I talked about a lot, pre acquisition and certainly post acquisition is, the only thing that we can do to set ourselves apart is deliver the best customer service possible.

So, if everybody has the same product, the only differentiator is how you take care of the customers. And that's been part of my previous career at the chemical company. For example, we would talk about what we're really selling is customer service and our chemicals just come along with it. 

So, we've really tried to emphasize that approach here. Having the customer be at the center of everything that we're doing and, just giving them the best experience pre and post sale.

[00:28:19] Ronald Skelton: Yeah, I've been, I was in that space long enough, in the IT space long enough, to know that the majority of things you have to go in and fix are usually caused on the opposite side of the keyboard. My wife tells me, I've got a problem with, before she let me finally switch her over to a Mac she used to come in here and tell me all the time. Hey, there's something wrong with my computer.

I was like, yeah, I think it's on the side of the keyboard. Let me see it for a second. Right. And she'd get mad at me. But now that we've got her on a Mac, it, it never happens because there's just, they're harder to break. It's a hammer. You lifted, you lift the lid, whack what you need to whack and shut the lid.

There's less, less problemsto go through. That said, I don't miss my days in the I. T. world at all. I was one of the, the I. T. managers that everybody, either love me or hate me. The sale staff used to love to put all kinds of games and stupid stuff on there. Almost every company I've ever been at on their computers.

And when they call me and tell me there's something wrong with the computer, I just go, hold on a second, right? And I do something behind the scenes. Okay, now reboot your computer. And then when they reboot the computer, I had a factory reinstall it because we had the, an install server set up.

And all I had to do is mark their machine for reinstall. And when they rebooted it, it would reinstall it from, and put it all back the way it's supposed to go. 

[00:29:25] Nick Akers: Yeah it's a tough business. You know, it's what we provide, everybody needs it, but not many people want to deal with it. Uh, so you, you struggle with that and it's, you know, it's a 24 seven business. Yeah, I mean, it, it, never fails when there's a significant customer event. It's almost always at Friday at four o'clock. 

[00:29:44] Ronald Skelton: Yeah, and it's usually it's, somebody asked me a long time ago why I got out of computers. I said, because they're boring. Usually a computer does exactly what it's programmed to do. It's very logical. It's easy to figure out. And if something broke on the computer, it's either and I'm going to be very crude right now.

It's either the idiot behind the keyboard or the idiot that put it together. Something or somebody walked over and, thought the thing looked messy, untangled all the wires, and then when they plugged it back in, they got something plugged in wrong into the wrong port, right? There's usually some user error on this.

That said, software has problems, has bugs, but unless you install an upgrade or a patch or something, you usually see those riding fairly quickly. There's race conditions and stuff. So my thing usually, whenever we had analogies are like, what changed? 

What is your, the day to day, what is, what are the team doing? Are they doing mostly installs and maintenance? Are they doing monitoring repair?

You got a whole mix of it? Or, cause I'm interested in this space. I'm actually, if I ever went back to manage service provider in the IT world, it'd be because I bought either a data center or bought a big, uh, MSP.

[00:30:49] Nick Akers: Yes, so on a day to day basis, we have different teams of people doing pretty much everything you described. We have, let's see, just, just, shy of 50 people. So this was a decent size company to acquire. And, um, because we have an installed base that represents the recurring revenue, you know, we're constantly servicing, monitoring that tech stack, right?

Everybody talks about the tech stack. We have project teams that are implementing new sales, whether it then goes into our recurring revenue bucket or, you know, these are one time it project sales where we're putting in new servers, hardware and equipment, what have you. So it runs the full range. No day is the same, certainly around here.

[00:31:35] Ronald Skelton: I imagine you guys have people who are specialized in all the connections between software to the API guys. That was one of the biggest problems we ever had on, okay, we have to install this patch into this software program, right? Or up, there's a new upgrade for the software and everybody wants to install it.

And all of a sudden the API changed and all the things that plug into it and use it, all the reports and all the other stuff. You got to go run around and fix a bunch of other stuff.

I come from prior military experience and worked for Lockheed Martin as a test engineer for a while. So I've built up like little test labs. So, we install it, we run a test scenario through it and see what broke. Like, are there any, anything that break? Do you get a lot of break fix where you were asked to upgrade a piece of software or a tool and all the stuff that plugs into it breaks?

[00:32:18] Nick Akers: Well, those things do happen, and it's certainly, you know, where I think those situations for us, at least, we're coming in kind of on the backside of that. Right? So it's not that, we certainly do everything you just described of running test environments. And, you know, we're not introducing harm when we do updates, new certificates, what have you. But yeah, you know, we, I think one of the things you see in this business and in any services businesses, uh, you get called in to fix the previous person's mess up, right?

[00:32:49] Ronald Skelton: Yeah. A lot of people build things into a like unique, unique configurations is the nicest way I can put it. They installed that. They made it work. They got it to work, but it wasn't maybe necessarily exactly how it was designed to work. So when you go and make a change, all of a sudden you're like, why did it break?

It should have never broke. So it's the previous guy found a special, special way to fix it. And that special way to fix it doesn't work anymore. Let's go back to the acquisition side of the thing. What were some of the things you learned through this process that if you were to acquire another one for growth or, for any other reason that you might change, what would you do differently from your lessons learned?

[00:33:28] Nick Akers: The experience that I've had, with the accelerator program and being able to acquire a business of this size, you know, I think it's larger than what most would be able to pull off on a self funded search. It has been great for me. No complaints, no regrets. We're having a lot of fun. However, what I advise people, searchers, perspective searchers, is if you want to go down this road, you owe it to yourself to really spend the brain cycles and think through each of the different models that you can do a search around. And, be very thoughtful about a individual search, self funded search.

I basically recommend folks, if you can do a self funded search, the reason for that is, you know, one, you essentially become this, the single largest, if not the only shareholder. So having complete control has a lot of advantages. But the other one is, unless you've really held the checkbook to millions of dollars, I don't think you understand how much money that really is.

And so to, so to have all of that for yourself as a single owner is incredibly powerful, for you personally. So if you can pull it off, I would recommend giving some serious consideration to self funded.

[00:34:48] Ronald Skelton: Interesting. So yeah, I didn't think about that. Cause now you have kind of a board, right? You have somebody who, because you are, through the program you're in, they play some role into that. Now, did they have a exit criteria for you? Like, you know, on their investment, are you looking at a five year project or is there, is it debt structured?

Are you going to pay them back? How does their continued involvement, either fade out or does it continue to work with you? 

[00:35:13] Nick Akers: Sure. So on the, the transaction structure, it is very typical of a traditional search fund. Where, you know, we use a certain amount of leverage in this case, it was traditional bank financing. We were fortunate, I was fortunate to find a bank that didn't require a personal guarantee. I think that's the other thing.

If you're doing a traditional search where you're not the majority, you, the searcher or not the majority owner, and you have to put a personal guarantee, you can still get fired, right. So, you gotta be, be really careful about that. So, you know, we found a, a great local bank partner. Provided no, required no personal guarantee.

Gave us a nice, real nice line of credit, right from, from day one. We did debt, plus equity plus some small amount of seller financing. So, you know, very normal structure. We do have a, a board, a formal board of directors. I think one of the great things about this particular program is, I'm on the board and I had a lot of influence on who the other board members would be.

So, some come from the cap table, um, and some come from, independent points of view. And so I have a really great board, people that I've known and worked with for a long time, and I enjoy those meetings. I get a lot of value out of them. In terms of the exit, just like traditional search, it isn't so much a time constraint, it's an IRR constraint, right? 

So the person in, in my role gets the maximum benefit at the, the higher, the IRR return. So, whether we pull that off in two years or five or six, uh, it's really just about the, the rate of return.

[00:36:53] Ronald Skelton: So I was curious because people are going to want to know that. A lot of people don't want to do the sponsored search because they think that, okay, now I have to sell that, whatever I buy, I'm going to have to sell it in five years or 10 years because there needs to be a liquidity for the other investors and that's the same, and that goes with anytime you take on investments.

It's either needs to be a debt structure where you're paying them off with interest over time. Which happens. I've, I've seen, I didn't even know that happened in this space until I was into it for most of the year. And I talked to some people who raised that capital,to acquire companies. Not through just banks, but even through independent, like family offices and stuff.

So, you know, now you know knowing that's possible is one avenue, but the other one is if you take on equity financing to buy these companies, then there has to be a liquidity event at some point, or otherwise those investors never realize. So you're not, either not going to do a 30 year hold, or you're going to have to find a way to buy those investors out at a certain period of time.

[00:37:48] Nick Akers: Yeah, that's a very good point that I think also needs to go into a potential searchers calculus of which way do they want to go. Uh, if you go the traditional route, as you just articulated, you have to generate a return in some way, shape or form. Could be you know, a total exit. Could be some other mechanism to buy them out. 

But in the traditional search model, if you want to maximize your own benefit and achieve those, you know, 25 plus, 30 percent plus IRR hurdles, you're basically looking at doubling the size of the business in some time frame. So, I heard somebody very recently articulate either these businesses have been around for 20 years plus. They most likely have not been on a rate of doubling in size every three to five years. And then, you know, you hotshot, MBA, McKinsey consulting, whoever you are, come in and, Oh, well now I'm going to be the one that can double the size of the business. Like what in the world do you know that the 30 year owner didn't know?

So my point of that is, not to underestimate the challenges of doubling the size of a business, or at least significantly upsizing it. Which you have to do in the traditional search fund model. As opposed to the self funded search, where by a great steady business, maybe it's, you know, somewhere between 500, 000 and a million of SDE.

And you as the individual own it and can hold that over an extreme time horizon. Boy, putting a million dollars a year in your pocket over 20 years is pretty powerful.

[00:39:25] Ronald Skelton: Absolutely. Absolutely. So, people don't get that, though. They don't understand, you know, some people would jump into the search fund and like, Hey, I don't have the funds just because they think that I don't have a million dollars sitting in any liquid account right now. I'm not gonna be able to buy this.

I have to go this other route. There's just so many different avenues. You know, you can raise debt capital to where at some point it's yours. You can raise, you can do these other structures where they sale lease backs on real estate. There's just so many different avenues. But, to keep their eye open and to be open for other strategies.

And for your point of doubling in with the next five years, the only consistent way I know companies can do 20, 30 percent a year and double every three to five years is through other acquisitions. That's why the PE firms are able to do 30 percent growth year over years because they're acquiring companies, right?

They're buying up smaller competitors and sometimes it's the minnow that swallowed the well. Some of these guys are buying up bigger competitors.

[00:40:21] Nick Akers: Yeah, I generally agree with you. I've seen that 10 to 20 percent growth, in, in, previous parts of my career. So, so it is possible. But you know, kind of one of the, my favorite quotes I've heard, uh, since being in this world is, and I forget who said it, but it was, the fastest way to double the size of your business is with your signature.

[00:40:41] Ronald Skelton: Yup. I love that one. So I haven't heard that yet. That's a good one. The fastest way, it's also the true, you got to be careful though, because it's the fastest way to make a small fortunes and out of, out of a big one, right? So you can buy the right company. Yeah. So he says, how don't you know, I have people ask me all the time, cause they know I used to own a real estate investment firm or something.

How do you make a fort, you know, a small fortune? Like start with a big one. That's the fastest way to make a small fortune. Start with a big one. Be careful what your wish for, because,I actually started a book many years ago. One of these days I'll finish, it's called, the book's title's, Get Rich Quick, My Ass.

And, it's because none of this stuff is get rich quick. None of it's easy. There's work to be done. You've got to build specialties. You've got years of experience and now you're learning on the job, right? Anybody who pitches this is something that you can just go buy a business and be rich overnight, you better be ready to work.

I just, I don't see that. There's no such thing as passive income in this, that I know of other than buying something that's got a dividend and you probably ought to check on their quarterly, at least read their quarterly reports on a regular basis.

[00:41:40] Nick Akers: There are, there are no shortcuts. I enjoy it, but I, you know, I work, I don't know how many hours, but I basically work every day, all day. Since closing, I've come to the office every Sunday. I drag my kids into the office with me on Sundays and they enjoyed it.

Super fun. But I mean, that's what you're signing up to do. You have to answer the phone Saturday at 9 o'clock at night. You don't have the option to not answer your phone.

[00:42:04] Ronald Skelton: Let's do, let's do some takeaways. If somebody is in there listening to this show, they're thinking about going down your path, they're going to buy a tech company or many service provider company, what would be the biggest takeaways? Like if they could only think of one or two things to remember from the show, what would you want them to walk away with?

[00:42:21] Nick Akers: If we're talking specifically about looking at these types of businesses, I would, you got to get into the weeds of the contracts, the customer contracts. That's where the value is. So you need to understand those. And then, uh, I always tell people get reps and warrants on your accounts receivable.

[00:42:39] Ronald Skelton: Yeah, that's a good one. And a lot of people like, if you're new out there, you know what reps and warrants are, google it, make sure your attorney does. Quit using your damn family attorney that set up your two startup LLC's to try to do a mergers and acquisitions. Still they don't understand that phrase yet, and it will kill you.

I was trying to buy a company and the attorney we were looking at were using, sent something over and had reps and warranties in it. And the other attorney was like, what the hell is all this? And it was standard broiler, broiler plate stuff. It was nothing special. And I come to find out, his divorce attorney was trying to sell his business for him.

The same guy that, you know, was helping him with divorce. The reason he was selling his business is in divorce. And, it turns out the attorney he hired to help him look at selling the business was his, general practice attorney, but did divorce and general business. It was a small town.

And I'm thinking, this guy has no business. When the deal busts on that, I called the attorneys. Like, look, you're not doing this guy any favors. You're actually hurting them. It's like, I'm doing this as a favor. I'm not an attorney. I can't give you legal advice, but I'm telling you, if I was a family member of his and I figured out you do that, I would see if I could hold you liable for what you're doing to his business. Like you're not doing him a favor, right? Find a mergers and acquisitions attorney that knows what they're doing. That knows what those terms look like and make sure, because nothing I gave you was special.

It was all broiler plate. It was all stuff that everyone I've ever seen had in it. We hadn't even got to the special stuff because we were still in the middle of the due diligence. We gave you a sample. This is kind of what it's going to look like. So good one. The, uh, the other one is, is not, a lot of people think all contracts are, you call it assignable? And better read the language of those contracts is not everything, no, not everybody believes that. 

And the last thing you're going to do is buy a company where the customers don't understand that the, the new buyer can, you know, be assigned those contracts and own them, right? Because then you're in the mode of like having to go out and renegotiate contracts with all your revenue.

And, it's not a place you want to be in. That's, the one thing we didn't get to. How will, before we jump real quick, how well did it go with the customers, right? When you got introduced to the customers, did you keep them all? Does everything go well with that or?

[00:44:42] Nick Akers: Yeah, our customer retention has been great and, uh, I think in some cases relationships have improved. You know, I think it's natural in any business, you know, we all can observe and make a judgment on somebody's stage in life. And you wonder, well, what's going to happen here? And, I think once they, some of them saw some surety of the future of, of this company and the partnership provides comfort. So that's been good.

[00:45:08] Ronald Skelton: Awesome. Awesome. Well, if somebody wants to work with you or sell you the managed service provider or how would you want people to reach out to you and, or, uh, connect with you?

[00:45:17] Nick Akers: LinkedIn is probably the easiest place. Just find my name, Nick Akers in St. Louis. Should be pretty easy to find me.

[00:45:25] Ronald Skelton: Awesome. Well, we'll, we'll put that in the show notes. Thank you for being here for today and hang out for a few minutes and we'll call that a show.